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Plot co:
The annual demand for product Q is456000 units per year and Plot co buys in this product at $1 per unit on 60 days credit.The supplier has offered an early settlement discount of 1% for settlement of invoices within 30 days.
Plot co finances working capital with short term finance costing 5% per year.Assume that there are 365 days in each year.
Q:Calculate the net value in dollaars to plot co of accepting the early settlement discount for product Q.
SIR my answer is discount savings =456000*0.01=$4560
increase in finance cost=456000*30/365*5%=$1873.972
Therefore net benefit=4560-1873.972=2686.028In future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other.
You have not said what you are asking me 🙂
Presumably you have an answer in the same book in which you found the question. Does that answer not agree with your answer?
Sir answer given in kaplan rk is 2667.
Trade payable after discount =456000*1*0.99*30/365=37105 sir why they multiply with 0.99?? In other qns on trade payables we are not doing this !!Multiplying by 99% is to take account of the 1% discount. The payables after the discount are 1% less.
As I explain in my lectures, the examiner has not been consistent in this – sometimes he has taken the full payables and other times the payables after the discount. There is an argument for both.
However he has made it clear that in the exam either would be allowed (and the difference in the end result will only ever ben small).
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